Danny Alexander Tells Whitehall To Make 'Rainy Day' Reserves

Government departments are being ordered to set aside billions of pounds in "rainy day" funds as part of moves to tighten financial management.

The Treasury is also stepping up its scrutiny of Whitehall spending, as ministers underscore their determination to hit deficit reduction targets.

The changes will be unveiled by Treasury Chief Secretary Danny Alexander in a speech to the influential Institute for Fiscal Studies (IFS) think-tank.

He will say the coalition has so far made good progress towards its spending targets for the review period.

As a result the UK has been sheltered from the "worst of the storm that continues to affect our Eurozone neighbours".
However, reforms are needed to ensure the plans are not knocked off track by unforeseen costs.

"In an environment of economic uncertainty, with ongoing instability in the Eurozone, the UK's large deficit remains a crucial economic vulnerability," Mr Alexander is to say.

"It remains a clear and present danger to stability."

Setting out new rules to be enforced from this year onwards, Mr Alexander will say: "These are rules have been drawn up with finance directors from across Whitehall, and are designed to fundamentally change and improve financial management across all organisations spending public money.

"Rules that demonstrate the collective determination of government to ensure that never again will our nation's finances be allowed to get into such a mess."

He will insist that departments' delegated responsibility for spending cannot be "an excuse to hide information, close the books, or weaken financial management".

"For too long financial management in Government has been stifled by poor information sharing and poor incentives. That has to change," the Cabinet minister will say.

"From now on, all departments must monitor and share spending information with the Treasury on a monthly basis. And that data must be consistent."

Mr Alexander will say that the Treasury kept central reserves small at the spending review in order to give the maximum possible to departments.

"It means that departments have to be able to deal with problems that arise from within their own budgets," he will insist.

"Many departments already operate a small 'unallocated provision' in their annual budgets, to meet smaller pressures that arise.

"And, under the new rules I have asked all departments to identify around 5% of their resource budget that could be re-prioritised if new pressures emerge or new policies have to be funded, so there is a shared understanding of how it could be paid for."

Mr Alexander will stress that the changes are not a "small tweak to the Whitehall machine".

"They are another signal of our unwavering determination to deliver the fiscal consolidation we promised," he is to say.

"It is this focus on delivery that is the cornerstone of our country's credibility. Credibility, let us not forget, which is delivering the record low interest rates that are benefiting millions of families across the UK."